Biggest Mideast Takeover at Risk as Turmoil Upsets Region

Nov. 8 (Bloomberg) -- The Arab Spring may prove one of the
biggest hurdles to Potash Corp. of Saskatchewan Inc.’s $13.5
billion takeover of Israel Chemicals Ltd. in what could become
the biggest acquisition ever in the Middle East, government
officials and analysts said.

Israel Chemicals’ minerals are harvested from the salt-rich
Dead Sea along the border with Jordan, and Israel is concerned
that foreign ownership would hinder its ability to defend the
boundary should unrest in the kingdom boil over, said Richard
Gussow, a senior analyst at DS Securities & Investments Ltd. in
Tel Aviv. Israel’s Defense Ministry would be less likely to
share intelligence with a foreign company, as it now does with
Israel Chemicals, he said.

Potash Corp., which owns 14 percent of Israel Chemicals,
would become the world’s biggest producer of the mineral
compound used to make fertilizer if the acquisition is approved.
The Canadian company also has a 28 percent stake in Arab Potash
Co., Israel Chemicals’ Jordanian competitor, whose factories
face its own across the Dead Sea.

“Any time you’re dealing with a foreign presence in
control of your border, alarm bells are going to ring at the
Ministry of Defense,” Gussow said by telephone on Nov. 6. “The
fact that Potash could control companies on both sides of the
border could also make them kind of nervous.”

The unrest that began in North Africa nearly two years ago
has deposed the leaders of Tunisia, Libya and Egypt and
unleashed a civil war in Syria, which borders Israel to the
northeast. Along Israel’s southern border with Egypt, gunmen
operating out of Sinai killed eight Israelis in August and a
Sinai natural gas pipeline owned by the joint Israeli-Egyptian
East Mediterranean Gas Co. has been repeatedly bombed.

Security Concerns

Concerns about security are among the biggest hurdles to
the purchase of Israel Chemicals, according to a senior
government official who spoke on condition of anonymity because
the acquisition is still being discussed. Joshua Hantman, a
Defense Ministry spokesman, declined to comment. The Israeli
government can veto takeover bids and Gussow said the chances of
the acquisition going through are “low.”

Jordan is a concern for Israel because most of its 6.2
million people are of Palestinian heritage and many harbor
resentment that they became refugees after fleeing or being
thrown out of their homes in pre-1948 Palestine and the West
Bank. Jordan fought two wars against Israel before their 1994
peace treaty, which many of its citizens opposed.

Peaceful Protests

While Jordanians have rallied for democracy, including a
constitutional monarchy and an elected government, the country
has managed to keep anti-government demonstrations peaceful
compared with unrest in Syria and Bahrain.

The Israeli-Jordanian peace treaty has proved durable since
it was signed by Yitzhak Rabin and King Hussein, both now dead.
The current leaders of both countries support the treaty, which
has held up even as ties deteriorated over Israel’s use of Amman
in a botched 1997 political assassination and the killing that
year of seven Israeli schoolgirls by a Jordanian soldier.

Israel captured the West Bank and east Jerusalem from
Jordan in the 1967 Middle East war and built Jewish settlements
that now house about 500,000 Israelis, amid 2.8 million
Palestinians.

Jordanian Shakeup

“Egypt and Jordan have been the cornerstones of Israel’s
regional policy because of the peace treaties,” said Benedetta
Berti, a research fellow at Tel Aviv University’s Institute for
National Security Studies. “Now you have the Arab Spring,
refugees pouring in from Syria, an economic crisis. All these
things are shaking up the kingdom and are a great concern for
Israeli leaders.”

If Potash Corp. does acquire Israel Chemicals, controlled
by the Ofer family’s Israel Corp., it would control about 25
percent of global production capacity, according to data
compiled by Bloomberg. Shares in the company, Israel’s biggest
business by market value after Teva Pharmaceutical Industries
Ltd., have climbed 18 percent this year, beating the 13 percent
increase in the benchmark TA-25 index of the Tel Aviv Stock
Exchange’s biggest companies.

‘Not on Agenda’

Officials will make recommendations on the bid after
reviewing a detailed application to be submitted by Potash
Corp., Finance Ministry Director General Doron Cohen said on
Nov. 2. Bill Johnson, a Potash spokesman, declined to comment.

The proposed offer by Saskatoon, Saskatchewan-based Potash
is “not on the agenda,” the Finance Ministry said in a Nov. 1
statement. The ministry said it has “professional
reservations” about the transaction and vowed the government
“won’t allow any deal that endangers or impairs the economic
and environmental interests of Israel and its citizens.”

Finance Ministry civil servants will meet Potash
representatives later this month to discuss the possible merger,
a ministry official said yesterday, speaking anonymously because
of the matter’s sensitivity.

The 86 percent of Israel Chemicals that Potash doesn’t
already own has a market value of about 51.4 billion shekels
($13.2 billion) based on yesterday’s closing share price, which
would make a deal the world’s largest agricultural chemical
acquisition, data compiled by Bloomberg show.